Tuesday, September 26, 2017

This is my first annual letter as CEO of the Bill & Melinda Gates Foundation. I’m excited to be able to share some thoughts about the foundation’s work over the past year.

Before joining the foundation in September 2008, I spent my career in business, most of it at Microsoft. As I was making the transition, I asked many people for advice. Over and over again, I heard a similar refrain: that the biggest difference between business and philanthropy is that in business, the market tells you exactly how you’re doing. In philanthropy, most people said, there is no market.

Gradually, I started to take some issue with this idea. Without a doubt, businesses do get pure market feedback in many cases. Costco generates a detailed sales report every single day.

But there is more than one kind of business. When your work involves researching and developing new products and services, you can’t always get real-time information about what’s working and what isn’t. For example, I joined the team that created Microsoft Office in 1981, and we didn’t really turn the corner for 13 years. It took even longer for our work on tablet PCs to bear fruit and, 20 years later, it’s still not clear where that technology is going to end up.

In short, in a business like software, sometimes you have to invest in innovations that don’t reach the market for a decade or more. In those instances, you rely on the other tools at your disposal to determine if the potential reward is worth the risk. You do your homework before you take on a project. You gather feedback from others with experience and good judgment. You use whatever interim data are available to measure progress as rigorously as you can.

Foundations are in a similar position. Often, finding the best ways to help people improve their lives takes many years of research and experimentation. But businesses are obligated to pursue financial returns, which don’t always coincide with social returns. Governments’ ability to undertake socially beneficial research is sometimes limited by political considerations. Foundations, in contrast, have more freedom to innovate in pursuit of social returns.

Because we’re taking risks, we have to accept the likelihood that some of our grants and strategies aren’t going to get the results we expected. As Warren Buffett has pointed out, if some of our grants don’t fail, that means we’re not taking enough risks.

At the same time, we have to accept a series of responsibilities—setting clear priorities, using data effectively, relying on others’ expertise—to make sure we’re making the most effective grants and devising the best strategies we can. At the Gates Foundation, we work especially hard to engage a wide network of partners who bring diverse perspectives to the work we’re doing together. I’ve spent a fair amount of my time over the past nine months getting to know our partners throughout the world. As a foundation, we depend on their willingness to challenge us when they disagree with our approach. In the end, this ongoing conversation will enable all of us to increase the impact we’re having.

This has been a very hard year for foundations and nonprofits—and the near future doesn’t look any easier. We’ve heard from our colleagues at many foundations, and we’re all digging deeper into our pockets and coming out with less money. Our endowments are down, so even if we draw a higher percentage than we did last year, we don’t have as much to give away. And many nonprofits have fewer and fewer resources at precisely the moment when the need for their services is greatest.

It’s difficult for foundations to find fiscal balance when there are so many demands to be met. On the one hand, there are exciting opportunities presenting themselves right now. For example, the world is closer than it’s ever been to a malaria vaccine. We will spend tens of millions to help fund the final phase of clinical trials, but we think it’s worth it because we believe this malaria vaccine can save millions of lives.

On the other hand, there are needs that are just as pressing that demand long-term commitment and, therefore, long-term economic viability. An HIV vaccine is still at least a decade away, and we must make sure we have enough money to see that work through to the end. As we balance all these needs, we’ll have to make tough choices. Even though our payout has gone up steadily in recent years, in the current environment it’s unlikely that we’ll be able to continue to increase our spending.

The good news is that the work our partners are doing on the ground still holds great promise for improving people’s lives.

In March, I traveled to Kenya and Zambia to see some of that work. One of the sites I visited was a milk chilling plant in the Kenyan town of Ol Kalou. The plant, which is part of a project with Heifer International, gives almost 3,000 dairy farmers the ability to chill their milk so that it won’t spoil before it is transported to a processing plant. This facility opens up a whole new market opportunity for them.

I was impressed by the chilling facility, but what really struck me were all the additional services attached to it. The plant had become a central hub where dairy farmers in a radius of 50 kilometers could get access to financial services, buy feed, and seek veterinary care for their cattle.

This is one kind of investment foundations are well-suited to make. At some point, these agricultural hubs may be profitable. In that event, they will draw interest from the private sector. But businesses won’t take that risk unless somebody provides more evidence that the business model works. I am optimistic that our project with Heifer International will do just that, while helping thousands of farmers escape poverty and hunger.

I have visited many different sites that accomplish a similar objective. In Chainda, Zambia, malaria is down about 80 percent in just five years because the community has embraced a comprehensive approach to malaria control. Results like these are leading the malaria community to set its sights higher (as we describe in the Global Health Program section of this report). In Washington, D.C., Friendship Collegiate Academy is demonstrating new ways of teaching that are helping low-income students earn postsecondary degrees. (We talk more about exemplary high schools in the United States Program section of this report.)

In Ol Kalou, I struck up a conversation with a man named Francis, an agricultural trainer who works through the dairy hub. To me, he has one of the greatest jobs in the world. I’d enjoy spending my days the way Francis does, talking to farmers about their work.

Francis was working with a married couple, David and Lucy, to help their cow produce more milk. David and Lucy told me they used to have three cows, but they sold two so they could send their daughter to college, where she’s working on a degree in hotel management. So their whole livelihood now depends on that single cow and the few acres they farm.

Francis helped them devise a plan to store feed, which will keep the cow well-nourished. By properly storing their feed and following good husbandry practices, Francis said, they could triple their milk production to more than 10 liters per day. That might be the difference between their daughter graduating from college or running out of tuition money.

It was a small thing, maybe—a few farmers talking about feed storage. But for David and Lucy, the ramifications were a happy and rewarding future for their daughter. That day, I was humbled to see the impact that philanthropy can have.

As we look toward a future of economic uncertainty, I have two priorities as CEO to help the Gates Foundation increase our impact per dollar spent.

The first is to make sure our internal processes run smoothly. One of my key responsibilities as CEO is to create an environment in which our staff can do its best work. Earlier this year, we surveyed all our employees for the first time ever. We were heartened by many of the findings—99 percent of respondents are proud of what the foundation stands for—but our staff also told us that it can be hard to get things done at the foundation. We need to clear some hurdles so we can all focus our energy on the people we aim to help. We’re currently developing a plan to address the results of the survey.

My second priority is to improve the quality of our external partnerships, which are our lifeblood. I know we are not doing as good a job as we can in this area. Starting with me, everybody at the foundation needs to make a concerted effort to listen more carefully to what our partners in the field have to tell us.

To that end, we are working with the Center for Effective Philanthropy to survey all of our active grantees this fall. In the past, we’ve received some feedback from our grantees that pointed out areas where they thought we were doing well and other areas, particularly with respect to how we interact with them, where we had room to improve. (You can read about what we learned on our web site.) This year’s survey will give us a fuller picture than we’ve ever had before. We’ll get the first cut of results back in January, and my leadership team and I will devote time next year responding to what we hear and building on our current efforts to strengthen our relationships with our partners. We will also post the findings of our grantee perception report on our web site.

As we address these important issues, we will be guided first and foremost by how this work contributes to our overarching goal of helping improve the lives of people like David and Lucy. In that spirit, I look forward to reporting back in next year’s letter about how we’ve acted on the information we’ve received from our employees and our partners—and how we plan to keep increasing the impact of every grant we make. In the end, impact is why we’re here.